The Recession Question

The rule of thumb definition of a recession historically has been two consecutive quarters of the GDP shrinking. So, with everything happening in 2022, does that mean we’re in a recession already? Technically, yes. But here’s the thing; there are a lot of things in this economy that just don’t make sense. Every trend you look at won’t feel like the conventional understanding of what a recession is. For example, when you look at the third quarter numbers, we actually had 2.6% growth on a quarterly basis. Year on year then means that the economy is 1.8% larger than it was the year before. Yes, the U.S. economy might be teetering on the edge of recession. But whether or not we’re actually in one, like we always say, is still anyone’s guess. 

Consumer Confidence and the Stock Market

For most investors, 2022 has to be one of the most disappointing years to be an investor. The pandemic, sharply rising inflation, falling stock prices, and Russia’s brutal invasion of Ukraine, combined with numerous other factors, have driven consumer confidence to an all-time low. When investors don’t feel confident about the markets, their natural tendency is to be cautious. Some go as far as selling all their risky assets in general, focusing more on risky stocks. However, history has repeatedly proven that you shouldn’t let how you feel about the economy influence your investing decisions. For example, in the JP Morgan report, on average, buying when confidence was high returned 4.1%, while buying when confidence was low returned 24.9%. However, we’re not suggesting this might be a great time to buy. We are suggesting that when planning for end-of-year investing, you should focus more on the data and the valuations rather than how they feel about an investment.

Links and Resources:

The JPMorgan Guide to the Markets

The Case for Long-Term Value Investing by Jim Cullen

Listen now to hear all about What History Tells Us About Today’s Economy and Markets.